Accy 510 Equity method assignment

Accy 510 Equity method assignment - 6.5 million Total...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Accy 510 Equity method homework assignment 1 Objectives: - Consider a different type of investment than we’ve looked at previously. - Think about how the accounting for it should match the nature of the investment. Illini Supercomputing Corp. acquired 25% of the outstanding stock of Hoosier Electrical Supply Company, buying 1 million shares at their market value of $14 per share on 1/1/2011. Assume in this simple example that the book balances of Hoosier’s recorded balance sheet items, and fair value measurements of assets and liabilities, on 1/1/2011 were: Book Fair Balance Value Assets Cash $ 2 million $ 2 million Accts Receivable (net) 5 million 4.9 million Inventory 10 million 12 million 40 million 39 million Total Assets $57 million $57.9 million Liabilities Accts Payable $ 1 million $ 1 million Long-term Debt (net) 6 million
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 6.5 million Total Liabilities $ 7 million $ 7.5 million Equity Contributed Capital $35 million Retained Earnings 15 million Total Equity $50 million Total Liabilities and Equity $57 million 1) Why would a firm like Illini make this kind of investment in Hoosier? a) How is this investment different from the usual investments firms make in stocks or bonds of another firm? b) What kind(s) of return is Illini potentially seeking from this investment? 2) For each asset and liability for which the fair value is different from Hoosiers book balance, identify and explain a few potential reasons for the difference. 3) From a book balance standpoint, Hoosiers balance sheet balances. From a fair value standpoint, should the balance sheet balance on 1/1/2011? Why or why not?...
View Full Document

Ask a homework question - tutors are online